The face of RFID has certainly changed. In fall 2004, the hype from the Wal-Mart-driven RFID mandate was at its peak. You couldn?t pick up a supply chain publication without reading about the merits of RFID and how it was going to change the world. However, remarkably similar to a fanatical fashion fad or the ridiculously popular toy of the last holiday season, the excitement that surrounded RFID just over a year ago has diminished significantly.

There is a significant difference between RFID and these other flash-in-the-pan items, though. RFID is a technology of tremendous value that is working its way through its natural evolution, and its potential won?t be realized in full until it matures. There?s a lifecycle to this technology; we are now in the ?getting it done,? or growth, phase. That?s not sexy or chic, it?s hard work. The fact that it?s no longer a top story is actually a good thing. This is the time of discovery, of finding practical and valuable ways to apply the technology, and then making them industrial strength.

As part of our exploration into RFID today, AMR Research reviews what?s working and what?s not. We also look into the future to estimate when the technology will become mainstream, and what that will mean to business.

RFID evolution: the lifecycle
In July 2003, AMR Research published ?RFID Will Be Bigger Than Y2K.? The time frame predictions, while ridiculed at the time, are actually holding pretty close to RFID?s evolutionary lifecycle. The basis for Figure 1 below is from that Report. We?ve updated the figure to depict the phases of RFID evolution.

There is no doubt that the RFID technology adoption was fast-forwarded by Wal-Mart mandates. Those in the Pioneer Phase have completed pilots and are working on industrializing the applications, expanding their rollouts, and leveraging the real-time, detailed data that is available from tracking inventory across the supply chain and out to the stores. These same companies are the leaders in the Growth Phase.

There are several factors that are working together in parallel during the growth phase that will ultimately set up the environment for the transition past the inflection point and into the Broad Adoption phase. Consider the following:

* Standards are stabilizing (e.g., acceptance and performance of Gen 2 and ePC).
* Physical technology is improving (e.g., tags and readers).
* Flow path processing intelligence is being developed (e.g., process path inference engines).
* Large infrastructure and electronics companies are getting in the water.
* RFID infrastructure is slowly penetrating more locations so that pioneers will be able to leverage early investments (e.g., U.S. Department of Defense, Target, Tesco, Albertsons, airports, Boeing, automotive associations, etc.).
* Volume is growing, albeit slowly, which is causing prices to drop ($.05 tags introduced for ultra-high volumes).

Metcalfe?s Law states that ?the value of a network increases exponentially with the number of nodes.? That is, a network becomes more useful as more constituents are connected. At broad adoption, participating in the network no longer becomes an option?it becomes essential.

Such will be true for RFID when the infrastructure to support pervasive readability across everyone?s supply chains and at important geographical points exists. That same expansion in pervasive infrastructure will naturally spawn volume-lowering prices. The years it will take to make the growth happen will allow the physical technology to grow from its infancy to become mature and reliable. At some point in time near 2010, the network effect will take over, the industry will transform through an inflection point, and broad adoption will begin.

The hype has quieted, but RFID is proving it will add value
Wal-Mart is reporting significant accomplishments between the company and its suppliers. These pioneers have invested significant amounts of money, time, and energy to force the technology forward.

While the primary players were already the industry leaders, the fast-followers and the laggards have a lot to gain as they get involved and the Growth Phase progresses. Here is the current state of RFID, as presented by Wal-Mart at the recent NRFtech 2006 convention:

* 5 distribution centers, 457 Wal-Mart stores, 36 Sam?s Clubs
* 300-plus suppliers
* Over three million tagged cases per week
* 26% reduction in out of stocks (OOS) after 29 weeks into program

Significant insights are now being gathered with access to store inventory position data that hasn?t been available before. 25% of OOS are due to product not being on the shelf; 28% of the time the product is at the store, but not available for purchase (backroom); and 47% of OOS are due to errors in ordering and forecasting.

Oat Systems, Intel, and ADT/Tyco are also taking strides to promote the Growth Phase by funding RFID pilots and ROI studies for six retailers, focusing on promotion execution management. With promotional spend between 12% and 15% of revenue, and the current average execution compliance at the store between 50% and 60%, it?s clear that getting the compliance percentage into the 90%-plus range will contribute to increased sales and better margins (see ?Promotions Execution: RFID Finds a Home?). Automated reconciliation to advanced shipping notices (ASNs) and invoices during receiving is close to being a reliable, highly productive process. Read rate reliability for certain products and configurations is still an impeding factor.

Targeted projects in other sectors are also proving valuable
In several other areas, RFID has been proving valuable. Many companies and technology vendors are piloting projects that use RFID in ways outside the consumer products/retail supply chain:

* Returnable container tracking and management
* Healthcare device and critical personnel tracking
* Container and other supply chain security scenarios (in combination with actuators and sensors for monitoring temperature, tampering, radioactivity, hazardous chemicals, etc.)
* Baggage handling
* Item-level tracking?serialization, authenticity, genealogy, shrinkage
* Pharmaceutical and e-pedigree
* Automotive, aerospace, and industrial?parts, repair, and warranty
* High-valued goods?jewelry, apparel, electronics, etc.
* Produce and livestock tracking

In all of these areas, targeted RFID projects are proving valuable uses for the technology.

Conclusion
Many issues must come together in parallel during the growth phase to move the technology from optional to essential. While all companies need to press forward at an investment pace that is appropriate for their business, it would be a mistake not to keep up with progress happening across your industry. The automated detection of identification and process flow will provide a productive method for processes that today are simply too laborious to perform, such as automatically scanning the entire contents of every ocean container at origin.

It will be these new process improvements that will bear the value of RFID when the growth drivers finally converge and adoption becomes essential.

Source: AMR Research

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